Risky assets rally lifts world financial markets
By Chris Harmse
FINANCIAL markets, especially share prices across the world and even more so on domestic markets, moved officially into a bull market as the rally in risky assets continues.
A bull run is normally defined as one where the price of assets, like equities, had increased by more than 10 percent from the beginning of the year. In most cases these share indices are also on new record highs.
The US equity board on Wall Street is moving typically in such a bull market. The S&P 500, that broke for the first time through the 3 900 level last week, not only trades at a record high level, but is already 27 percent up for the year. The same tendency is appearing on the Dow Jones and Nasdaq boards.
In many emerging markets the same are appearing to be the case. In Hong Kong the Hang Seng index is now up 10.1percent for the year. In India the Sensex gained around 9 percent for the year to date.
In South Africa share prices seems to ignore the domestic political and economic factors and follow the global trend. The negative perceptions surrounding the President’s State of the Nation Address (SONA), the failure to apply any vaccine in the near future, or only a very limited number of doses, as well as the devastating evidence of corruption in front of the Zondo commission of enquiry into state capture, could not stop share prices on the JSE to rally. The negative report by Moody’s of a possible further downgrading also could not stop positive sentiment for risky assets on the JSE.
Even financial and listed property shares had a big rally. As a result many investors in South African shares, unit trusts, and bonds, as well as pension funds experienced a sharp increase in the values of their investments.
On the JSE the all share index broke through the 65 000 and 66 000 levels in one week. The index closed Friday on 66 132. This is up by 1 843 (2.9 percent ) for the week and already gained 6 723 points (11.3 percent ) from the 59 409 opening level on January 4.
The Industrial Index gained 2.8 percent during the week and is now 14.5 percent higher for the year to date. Resources, although tracking back a bit due to the stronger rand exchange rate, still ended the week in the green as the Res10 index gained 2.8 percent as well.
The rand rally again helped financials to recover a lot of lost ground. The Fin15 gained 1.3 percent, and is now 5.7 percent up for the year. Listed property also recovered strongly last week as the SAPI index shot up by 4 percent, already gaining 5.9 percent since the beginning of the year.
On commodity markets prices also continue to shake off the Covid-19 blues and as proxy for a strong recovery in the world economy post a Covid-19 vaccination.
The gold price traded higher by $10 (R146) last week on $1 817 per ounce. The platinum price continues its tally and traded Friday afternoon on $1 240 per ounce. This is 15 percent higher than the $1 083 at the beginning of the year, and $320 up since August.
In line with global bull buying of resources, the oil price also rallies. Brent crude ended Friday almost $2 per barrel higher than the previous Friday on $61.70 per barrel. At this stage it is expected that fuel price will increase once again sharply at the beginning of March.
By last Thursday the price for petrol was already 57 cents per litre under recovered and that of diesel by 46 cents per litre under recovered. Bonds tracking a bit negative geo-political sentiment in the country as rates moved up marginally last week.
The rand exchange rate also seems to ignore domestic geo-political challenges. Against the dollar the rand recovered to its strongest weekly close this year of R14.60 to the dollar on Friday. Against the pound sterling the currency improved by 28 cents to close on R20.19 and against the euro the rand appreciated by 26 cents and traded on R17.66.
This coming week all eyes will still be on more news on the out roll of the first Covid-19 vaccine in South Africa. Statistics South Africa will release the inflation rate for January this Wednesday. It is expected that the consumer price index had increased marginally from 3.1percent year on year from the previous month. The retail sales for December will also be released on Wednesday
Globally investors will look out for the release of Japan’s and the European Union’s gross domestic product economic growth rates for the fourth quarter and the whole of 2020. The EU will also announce its latest unemployment data. Most of the major economies will also publish their latest inflation rates and retail numbers. The US will release the latest minutes of the Federal Reserve Monetary Policy Committee (FOMC) on Thursday.
Dr Chris Harmse is an economist at CH Economics
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